BBA 3rd Year Basics Of International Trade Long Question Answer Reasons for Companies Going Internationl Study Material And Notes Mock papers Chapter Wise Question Answer Book Code-604
BBA 3rd Year Basics Of International Trade Long Question Answer | Index
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BBA 3rd Year Basics Of International Trade Long Question Answer Notes Page.3
(Long Answer Questions)
Q.1. What do you mean by international business? Why companies go international ?
Ans. Meaning and Definition : The meaning and definition of international business is given as under:
“International trade consists of transactions between residents of different countries.”
-Wasserman and Haltman
Today, business is acknowledged to be international and there is a general expectations that this will continue for the foreseeable future. The study of international business has become more important in recent years because of the growing influence of multinational companies (MNCs) and global corporations.
“International business means carrying of business activities beyond national boundary.” These activities include normally the transactions of economic resources and international production of goods and provision of services. The broad forms of internationalisation of business are therefore, trade, technical collaboration and investment. International business grew over the half of the twentieth century partly because of liberalisation of both trade and investment and partly because doing business, internationally had become easier. For example Tata Motors, India’s largest automobile manufacturer, is steadily increasing its presence across the world. Tata passenger cars and trucks are currently being purchased by customers in Europe, Africa, the Middle East, South and South East Asia and Australia.
International business is all commercial transactions between two or more countries. Private companies undertake such transactions for profit which partly depends on foreign sales and resources. Government business may or may not be profit motivated.
Though there are a number of definitions available for international business but no simple or universally accepted definition exists for the term international business.
At the end of the definitional spectrum:
“International business is the process of focusing on the resources the organizations on global business opportunities and threats.
While going internationally, a company should consider its mission, its objective The basis or reasons for going internationally are given below
1. To Expand Sales: Expansion of sales is the major motive for company’s expansion into international business. Many of the world’s largest companies derive half of their sales from outside their home country. However, smaller companies also may depend on foreign sales. For example, Pan Vera, a U.S. biotechnology research firm, makes about 25% of its $7 million a year sales abroad and U.S. Small Business Administration estimates that small companies account for 31% of U.S. exports.
2. To Achieve Higher Rate of Profits : The basic objective of the business firms is to earn profits. When domestic markets do not give a higher rate of profits, than business firms go for foreign market, which gives higher rate of profits. For example Hewlett Packard earned 85.4% of its profits from foreign market in 1994.
3. To Acquire Resources : Most companies search for the products, services and components produced in foreign countries. They also look for foreign capital, technologies and information they can use at the home country. As there is availability of advanced technology and managerial competence in home countries that act as a pulling factors for business firms from the home country companies. The developing companies are attracted by the developed countries due to these reasons.
4. Limited Home Market : When the size of the home country’s market is small due to low purchasing power of the people or smaller size of the populations, the companies go internationally, For example: ITC entered the European market due to the low purchasing power of the Indians with regard to high quality cigarettes.
Q.2. What are the basic differences between domestic business and international business?
Or What is the difference between internal trade and international trade? (2015)
Ans. Today, business is acknowledged to be international and there is a general expectation that this will continue for the foreseeable future. International business may be defined simply as business transactions that take place across national borders. This broad definition includes the very small firm that exports (or imports) a small quantity to only one country, as well as the very large global firm with integrated operations and strategic alliances around the world. Within this broad array, distinctions are often made among different types of international firms and these distinctions are helpful in understanding a firm’s strategy, organisation and functional decisions (for example, its financial, administrative, marketing, human resource, or operations decisions). One distinction that can be helpful is the distinction between multi-domestic operations, with independent subsidiaries which act essentially as domestic firms and global operations, with integrated subsidiaries which are closely related and interconnected.
International business grew over the second half of the twentieth century partly because of liberalisation of both trade and investment and partly because doing business internationally had become easier. In terms of liberalisation, the General Agreement on Tariffs and Trade (GATT) negotiation rounds resulted in trade liberalisation and this was continued with the formation of the World Trade Organisation (WTO) in 1995. At the same time, worldwide capital movements were liberalised by most governments, particularly with the advent of electronic funds transfers. In addition, the introduction of a new European monetary unit, the Euro, into circulation in January 2002 has impacted international business economically. The Euro is the currency of two-thirds the European Union member countries. Presently there are 28 countries in the European Union.
The United States dollar continues to struggle against the Euro and the impacts are being felt across industries worldwide.
In terms of ease of doing business internationally, two major forces are important:
1. Technological developments which make global communication and transportation relatively quick and convenient.
2. The disappearance of substantial part of the communist world, opening many of the world’s economies to private business.
International business is different from domestic business. The following are the points of difference between international business and domestic business :
International business means carrying of business activities beyond national boundary whereas business activities in case of domestic business are limited to the length and breadth of the country.
1. Transactions in international business are mostly intra-firm, apart from the inter-firm transactions where goods and raw material remain between the parent company and the subsidiary company whereas transactions in domestic business are inter-firm.
2. Another point of difference is that international business is typically costlier than domestic business. The reason is that a border typically imposes additional costs such as tarins, time costs due to border delays and costs associated with country differences such as
language, the legal system or a different culture.
3. Another difference between domestic and international trade is that factor of production such as capital and labour are typically more mobile within a country than across countries.
Q.3, Discuss the various approaches of international business.
Ans. The various approaches of international business are as follows:
1. Ethnocentric Approach : This approach is based on the assumption that consumer needs and market conditions are more or less homogeneous in international business as a result of globalisation. A firm markets its products developed for the home market with little adaptation. Generally, an exporting firm in the initial phases of internationalisation relies too heavily on product expansion in international market.
This market extension approach of product development facilitates cost minimisation in various functional areas and a firm gains rapid entry into international markets. However, the ethnocentric approach does not always lead to maximisation of market share and profits in international markets since the local competitors are in a relatively better position to satisfy consumers needs.